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Is the entity, an overseas non-resident company, making an input taxed supply under subsection 40-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies an outbound (from Australia to overseas) money transfer service to a customer in Australia?

Yes, the entity is making an input taxed supply under subsection 40-5(1) of the GST Act when it supplies an outbound (from Australia to overseas) money transfer service to a customer in Australia.

The entity is an overseas non-resident company. The entity supplies an international money transfer service to customers located worldwide, via its agents that are located in various countries (including Australia).

In this case, the entity is supplying an outbound (from Australia to overseas) money transfer service to a customer in Australia. This supply involves these steps: • The customer in Australia initiates a money transfer by contacting the entity's agent in Australia to transfer money to the customer's nominee in a designated overseas country. • The customer in Australia provides the entity's Australian agent with a money transfer form together with an amount of the money which is to be transferred to the entity's agent in the overseas country. The entity recognises a liability in its financial accounts when the money is provided to its agent in Australia. • The customer's nominee in the designated overseas country contacts the entity's agent in that country and collects the money from that agent after completing a money receipt form. The entity's obligation to the customer in Australia is discharged when this payment is made and the payment is recorded as a subsequent reduction of the liability in the entity's financial account. • The customer in Australia pays a fee to the entity's Australian agent for the money transfer.

The entity is registered for goods and services tax (GST). The supply is in the course and furtherance of an enterprise that the entity carries on.

Under subsection 40-5(1) of the GST Act, a financial supply is input taxed. The term 'financial supply' is defined in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

Subregulation 40-5.09(1) of the GST Regulations provides that the provision, acquisition or disposal of an interest is a financial supply if: • the interest is listed in subregulation 40-5.09(3) or 40-5.09(4) of the GST Regulations; and • is for consideration; • is in the course or furtherance of an enterprise; • is connected with Australia; • (paragraph 40-5.09(1)(a) of the GST Regulations); and

the supplier: • is registered or required to be registered for GST; and • is a financial supply provider in relation to a supply of the interest • (paragraph 40-5.09(1)(b) of the GST Regulations).

However the supply of something, or an interest in or under something, that is also covered by regulation 40-5.12 of the GST Regulations is not a financial supply.

First, it is necessary to determine whether there is a supply by the entity to the customer in Australia, of an interest in or under an item mentioned in subregulation 40-5.09(3) or 40-5.09(4) of the GST Regulations.

In supplying the outbound money transfer service, the entity is supplying the customer with a presently existing obligation to pay an ascertainable amount at a future time. The supply of this obligation is a provision of an interest in a debt and is covered by item 2 in the table in subregulation 40-5.09(3) of the GST Regulations.

The provision of an interest in a debt is not listed as an item in regulation 40-5.12 of the GST Regulations. Therefore, the provision of this interest is a financial supply if all of the requirements of subregulation 40-5.09(1) of the GST Regulations are satisfied.

The customer in Australia pays a fee to the entity's Australian agent for the money transfer. Therefore, the supply (provision of the interest in a debt) is for consideration.

The provision of the interest in a debt is not a supply of goods or real property. Therefore, subsection 9-25(5) of the GST Act is the appropriate provision in determining whether the supply is connected with Australia.

Subsection 9-25(5) of the GST Act provides that a supply of anything other than goods or real property is connected with Australia if either: (a) the thing is done in Australia; or (b) the supplier makes the supply through an enterprise that the supplier carries on in Australia.

For the purposes of paragraph 9-25(5)(a) of the GST Act, paragraph 209 of Goods and Service Tax Ruling GSTR 2000/31 provides: 'if the supply is the obligation to do anything or the obligation to refrain from an act or the obligation to tolerate an act or situation, the thing that is being supplied is the obligation to do something, to refrain from something, or to tolerate something, and the thing is done where that obligation is entered into.'

In this circumstance the obligation arises under an agreement which was executed when that customer provides the entity's Australian agent with a completed money transfer form. The completion of the money transfer form by the customer and the acceptance of the completed form and money by the entity's Australian agent is done in Australia. Therefore, the supply of the obligation to the customer is done in Australia and the supply is connected with Australia under paragraph 9-25(5)(a) of the GST Act.

The supplier is registered for GST and the supply is in the course and furtherance of an enterprise. Therefore, the first four requirements in subregulation 40-5.09(1) of the GST Regulations are satisfied. Accordingly, it is necessary to determine whether the entity is a 'financial supply provider' in relation to the provision of the interest.

Under subregulation 40-5.06(1) of the GST Regulations, the financial supply provider of an interest is the entity that: • had property in the interest immediately before it was supplied; or • created the interest in making the supply.

The entity created the interest in a debt in making the supply (provision of a presently existing obligation to pay an ascertainable amount at a future time). Therefore, the entity is the financial supply provider in relation to the provision of the interest in a debt to the customer in Australia.

All the requirements of subregulation 40-5.09(1) of the GST Regulations are satisfied. As such, the entity is making a financial supply that is input taxed under subsection 40-5(1) of the GST Act when it supplies an outbound money transfer service to a customer in Australia.

However, paragraph 9-30(3)(a) of the GST Act provides that where a supply would be both GST-free and input taxed, the supply is GST-free unless the supplier has the option to treat the supply as input taxed and elects to do so.

Under section 38-190 of the GST Act, certain supplies of things other than goods or real property for consumption outside Australia, are GST-free. As the supply of the money transfer service is the supply of an obligation (and not a supply of goods or real property), its GST status should also be considered under section 38-190 of the GST Act. Supplies covered by the item numbers in the table in subsection 38-190(1) of the GST Act are GST-free, subject to their scope being restricted or widened through the application of subsections 38-190(2), 38-190(3) and 38-190(4) of the GST Act.

The entity is making a supply that involves the supply of an obligation to a customer in Australia. The supply of a presently existing obligation to pay an ascertainable amount at a future time is both made and provided to the customer in Australia. Therefore, subsection 38-190(4) of the GST Act will not operate to widen the scope of item 3 in the table in subsection 38-190(1) of the GST Act. No other items in the table in subsection 38-190(1) will apply to this supply.

Consequently, the supply of an outbound money transfer service (being the supply and provision of a presently existing obligation to pay an ascertainable amount at a future time) by the entity to the customer in Australia does not come within the scope of subsection 38-190(1) of the GST Act. As such the supply is not a GST-free supply. Accordingly, the supply of an outbound money transfer service by an entity to its customer in Australia is input taxed under subsection 40-5(1) of the GST Act. Note: Goods and Services Tax Rulings GSTR 2005/6 and GSTR 2007/2 discuss when a supply is made to an entity but provided to another entity. These rulings also discuss the consequences of this and are therefore relevant in determining whether a supply is GST-free under item 2 and item 3 in the table in subsection 38-190(1) of the GST Act.